EnCana Corporation is revising the original schedule for its proposed split into two independent energy companies focused on unconventional resources -- an integrated oil company to be named Cenovus Energy Inc. and a pure-play natural gas company, which will retain the name EnCana Corporation.
Given the uncertainty and volatility in the global financial markets, EnCana is choosing to delay the timing of a shareholder vote, originally planned for December, until clear signs of stabilization return to financial markets.
"We remain committed to creating Cenovus and we are continuing to work on reorganizing our company's structure so that we are ready to move forward with the transaction at the appropriate time," said Randy Eresman, EnCana's President & Chief Executive Officer.
"The underlying reasons for creating the integrated oil company Cenovus, and establishing EnCana as a pure-play natural gas company, are still valid. However, there is currently too much uncertainty in the global debt and equity markets to proceed with external approvals at this time. We cannot predict when the appropriate financial and market conditions will return, but EnCana will be prepared to advance the proposed transaction when it determines that the market conditions are appropriate," Eresman said.
"Despite the current financial market turmoil, EnCana remains financially and operationally strong. Our balance sheet remains very sound. Through this period of uncertainty, EnCana will act in a conservative, prudent manner that is consistent with the company's tradition of continuing to pursue strong financial returns while managing risk and maintaining financial strength and flexibility," Eresman said.
Price Risk Managed with Substantial Hedges
Over the next year, EnCana has a substantial portion of expected future production hedged at strong prices. About 80 percent of EnCana's total production is natural gas. For the 2009 gas year, which runs from November 2008 through October 2009, EnCana has about 2.5 billion cubic feet per day -- about 60 percent of current production -- hedged at an average price of US $9.15 per thousand cubic feet.
Cash Flow and Production on Track, Strong Balance Sheet Maintained
EnCana's cash flow and natural gas and oil production are in line with 2008 guidance. This will be reflected in the company's third quarter financial and operating results scheduled to be published October 23, 2008.
EnCana targets a net debt-to-capitalization ratio between 30 and 40 percent and a net debt-to-adjusted-EBITDA multiple, on a trailing 12-month basis, of 1 to 2 times. Both measures are expected to be at the lower end of the target range. EnCana employs a conservative capital structure. About 78 percent of outstanding debt is fixed-rate debt with maturities between 2009 and 2038. Upcoming debt maturities of $250 million in August 2009 and $200 million in September 2010 are modest relative to EnCana's financial capacity and cash flow. EnCana has committed bank credit facilities of approximately $4.8 billion, of which $2.7 billion was available at September 30th.
"We are working on our 2009 budget plans, taking a measured approach that is appropriate for current economic conditions. In addition to adhering to our long-standing practice of maintaining capital discipline, we will be even more focused on capital preservation in these uncertain times. Within our portfolio of development opportunities, we have significant flexibility and turn-down capacity to promptly adapt to rapidly changing market conditions, particularly during periods of uncertainty such as those that appear to be on the shorter-term horizon.
"Over the longer term, the North American and global demand for energy is expected to continue to rise. We have built our company and assembled premium unconventional resource assets to deliver sustainable, low-cost supply for many years ahead. Consistent with the sound financial and management principles that have guided EnCana's success to date, we will continue to act in the best interests of shareholders in enhancing long-term value. At this time, that means we are continuing to plan and work towards the creation of Cenovus, but are deferring its full creation until the market conditions are appropriate," Eresman said.
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